Indian rupee at 3-month high after RBI holds rates, charts suggest further gains

Charts suggest more upside for the rupee, at least up to 66.60/dollar, in the near term.

India rupee
Indian rupee notes Reuters

Indian shares may open higher on Thursday (Feb 9) after closing almost flat in the previous session followed by the Reserve Bank of India decision to leave the benchmark interest rates on hold when many were expecting a cut of at least 25 basis points.

The rupee and bond markets will also be in focus on Thursday after the drastic moves on the policy day. Charts suggest more upside for the rupee, at least up to 66.60/dollar in the near term.

The Indian rupee raced to a three-month high against the dollar on Wednesday after the RBI announcement. USD/INR fell to 67.06, its lowest since mid-November, and from Tuesday's close of 67.36.

BSE Sensex, the main shares index of India, ended 0.16% down on Wednesday, but SGX Nifty futures, have risen more than 0.2% by around 10:30 AM Singapore, pointing to a stronger opening in Mumbai later in the day.

Government bond prices had fallen sharply after the surprise RBI move on Wednesday, leading to a 26 basis points slide the yield for the 10-year benchmark.

The central bank's statement that growth would recover "sharply" helped the share market support but the words have prompted analysts to call the policy stance more of neutral now from being accommodative until recently.

That means the central bank has reached the bottom of the recent easing cycle, which is good for rupee buyers given the interest rate advantage.

Some analysts have even said bond investors may better cut down their earnings expectations as the good time for bond buyers have gone with yields unlikely to fall now.

USD/INR Technicals

Technically, the pair is testing a near term support at the current level, and if the rupee keeps its upward momentum, then a further slide for the pair in a channel is likely in the coming days which could take it to 66.60 eventually.

An intermediate support level of 66.80 may also be considered on the way but a rebound will be more likely at 66.60

In case of a rebound from current levels, one should focus on 67.40 immediately and then 67.75. A break of that will resume the upward trend of the first three weeks of January, and the level then to eye will be 68.50.